What would a war between Taiwan and China mean for the tech world?

Military rhetoric between China and Taiwan is on the rise as House Speaker Nancy Pelosi visits the country.

Chinese fighter jets flew along the Taiwan Strait Tuesday morning before Pelosi’s visit, and the Taiwanese government said it had come under cyberattack. And China has warned that Pelosi’s visit could result in “disastrous consequences.”

Pelosi is the highest-ranking U.S. official to visit the island in 25 years. While Taiwan is a self-ruled democracy, China claims it as part of its territory. And the visit has the Communist nation positioning itself for military drills, firing missiles into the Taiwan Strait, and sending more planes and naval vessels closer to the island.

While it’s still a big unknown if China will invade or is simply posturing, Taiwan’s importance in the tech world is undeniable. The country manufactures more than 90% of the world’s most advanced semiconductors, with exports of $118 billion last year. And it’s home to Taiwan Semiconductor Manufacturing Co. (TSMC), the world’s most advanced chip factory, whose clients include such prestigious names as AMD, Apple, Nvidia, ARM, and others.

Without those chips, the frustrating delays we’ve faced in the pandemic years trying to buy a new car or a laptop or find a new video card or PlayStation will seem like the halcyon days of yore for consumers. And technological advances in many fields could grind to a virtual halt.

In a recent rare interview with CNN, TSMC president Mark Liu said an invasion would severely disrupt the economies of not only Taiwan and China, but most western countries as well.

“War brings no winners. Everybody’s losers,” he said. “If you take a military force or invasion, you will render TSMC factory [inoperable]. Because this is such a sophisticated manufacturing facility, it depends on real-time connection with the outside world, with Europe, with Japan, with U.S., from materials to chemicals to spare parts to engineering software and diagnosis.”

While Russia’s invasion of Ukraine has certainly impacted global trade routes, disrupting gas prices and causing a spike in food prices across Europe, Taiwanese officials say an attack on their country by China would have a larger global impact, hitting industries ranging from automakers and personal electronics to home entertainment.

“There would be a worldwide shortage of supply,” Taiwan’s top trade negotiator John Deng told Reuters earlier this year.

Taiwan’s military has been holding exercises of its own for much of the past week as the People’s Republic of China’s army has increased its saber rattling. But the numbers aren’t on Taiwan’s side. China has 412,000 ground force personnel in its eastern and southern fleets; Taiwan has 88,000. The island nation is also woefully outnumbered in fighter jets, submarines, frigates, and destroyers—and has no aircraft carriers at all.

If there is a conflict, the shipping lanes (which are among the busiest in the world) would not be safe to pass. In the first seven months of the year, just under half of the world’s 5,400 container ships utilized the Taiwan Strait, transporting not only semiconductors and cell phones, but also clothing and appliances. Some 88% of the largest container ships use the waterway.

And if the U.S. were drawn into a war with China over Taiwan? A study by the Rand Corporation says that could result in a reduction in the U.S. gross domestic product by between 5% and 10%.  

And while TSMC’s president says an invasion would make his factory inoperable, if China were to somehow take the facility and get it up and running again, that would give the country a tremendous global technological advantage and present a nightmare scenario for Homeland Security officials and others.

That was almost certainly a factor in the House of Representative’s passage of the CHIPS and Science Act last week. The bill, which President Biden signed into law Tuesday afternoon, will establish billions of dollars in incentives for chipmakers to build factories in the U.S.

Intel will be one of the chief beneficiaries, but TSMC could reap benefits as well, as the company is working on a $12 billion fabrication plant in Arizona.